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Kay Haigh is one of the few hedge-fund managers in the world who can claim to have had a solid year. His fund, Avantium Liquid EM Macro Master Fund, was up about 6.5% from Jan. 1 to Oct. 31—just 12 months after the former Deutsche Bank trader launched it with some colleagues from the bank. The HFR Emerging Markets Index rose 5.6% in that time. Without a single euro from Deutsche, Avantium has gathered about $700 million in assets from 25 pension funds, family offices, and other investors who were attracted to an investment strategy that smooths out the bumps in emerging markets by spreading risk across several asset classes from currencies to stocks.

Haigh, who is German, is one of hundreds of talented traders who have left the proprietary trading desks of global investment banks over the past couple of years and resurfaced as hedge-fund managers. They're armed with skill sets that are in demand at hedge funds. Some are launching their own funds—a total of 549 new hedge funds were launched during the first six months of this year, according to Hedge Fund Research in Chicago—while others are joining established ones.

This migration is being driven by a wave of financial reform that Congress hoped would wipe risk off of the balance sheets of investment banks and help Wall Street avoid another Lehman Brothers-style blowup. The Volcker Rule of the Dodd-Frank Act, which banks are scrambling to comply with before the government starts to enforce it in July 2014, would prevent federally insured banks from engaging in proprietary trading—that is, investing their own capital in the markets. Rather than wait for banks to close their "prop desks," many star traders have gone into business for themselves over the last couple of years. Among them were Morgan Sze of Goldman Sachs, who launched Azentus Capital Management in Hong Kong in April last year, and Mike Stewart of JPMorgan Chase, who started Whard Stewart Asset Management in London in March this year. Haigh insists that he had planned to cut himself loose for several years but admits, "If I had not wanted to do it, I would have been forced to."

THIS NEW CROP OF TALENT HAS inspired great expectations. In theory, the more talent available to hedge funds, the greater their ability to generate alpha—the excess return added by a manager's skill—and thus the greater the returns to investors, explains Damien Loveday, a consultant at Towers Watson in London who helps investors find hedge funds.

It will still take a few years to judge the new crop's success, says Loveday. But it won't be easy for former traders to gather assets and perform well at a time when hedge funds in general are under siege. From Jan. 1 to Sept. 30, investors withdrew $9.5 billion more from hedge funds than they deposited, according HFR. The investors are responding to a decline in performance in hedge fund strategies across the board this year, says Sol Waksman, president of Fairfield, Iowa-based BarclayHedge, which tracks hedge funds.

It's not an ideal environment for rookies. Investors who are still putting money into hedge funds are favoring established ones with long track records, says Waksman. So a few rookies are already giving up. One is former Goldman Sachs trader Pierre-Henri Flamand, who announced in November that he would close down Edoma Partners, the hedge-fund firm he launched two years ago, after it lost about 5% from Jan. 1 to Oct. 31.

When the hedge-fund industry comes out of its funk—which it will, sooner than later, predicts Waksman—it will be interesting to see which new players are still in the game. Those that hit the ground running with a compelling investment strategy—like Avantium—will have a clear advantage.